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Starting Your Own Law Firm

This is the first in a series of articles relating to the specifics of starting your own law firm. The articles will feature what I’ve learned during my over 30 years working with lawyers, as law firm administrator, consultant on eighteen law firm start-ups, and adjunct law professor. The articles will be most pertinent to lawyers with established practices. (In the future, I will focus on new lawyers who want to start their own firm.)

In my experience, the main reasons experienced lawyers leave larger law firms to start their own are:

Quality of life issues

Compensation distribution inequities

Law firm direction and management disagreement

Quality of life issues

Quality of life issues usually manifest themselves in high hourly billing requirements, lack of understanding of the challenges of some practice areas relating to accounts receivable management/collection, involvement in marketing or other areas of the firm’s business which require long hours in the office or after office hour activities. Quality of life is also often affected by firm management and culture.

Compensation distribution inequities

Inequities in compensation distribution are most often experienced in larger firms. In some cases, as lawyers become more senior, their compensation may not equate to the effort they put forth in their practice or the firm in general. And yet, they are compensated at a high level. Younger attorneys often resent this. The older lawyer may feel that he/she has “paid his dues.”

Younger lawyers care about the “here and now.” With law school debt looming, financial struggles for younger lawyers are a way of life. After having the good fortune of being employed by a law firm, they want assurance that they are on the road to fair compensation (according to their beliefs). Having said that, the young lawyer is not willing to sacrifice his/her personal life for the firm, as did many of the more senior lawyers. Finding the middle ground on this issue is today’s challenge for the firm and all lawyers.

Overhead costs usually play into this, as well. Some people believe that there is economy in numbers. This may be true in other businesses, but not law firms. The larger the law firm, the more income it will take to sustain that firm; followed by greater expenses. Usually, the smaller the firm, the more economically it can be run.

Law firm direction and management disagreement

From my experience, this is actually the biggest factor as to why lawyers look to start their own firm. Often times, a lawyer may feel his/her practice area is under-valued by the firm’s management. This is usually reflected in compensation distribution, however, it manifests itself in other more subtle ways, as well. Disagreement about hiring of laterals or new lawyers can also be an issue. Lawyers often disagree on what should be rewarded. Are the rainmakers the most valued in the firm (the finders)? What about the minders and the grinders? What is the firm’s culture? Is everyone valued, or only some? If the firm’s values are stated but not lived, turnover is usually the result.

Overhead is also a major issue. Every partner has an opinion on how overhead can be cut, however, so few really understand what it takes to run the firm. Rarely, do I see lawyers focus on how to increase revenue. Instead, the focus is primarily on cutting expenses. This is akin to keep your car in neutral, rather than putting it in drive. Idling your car never gets you anywhere.

In Summary

The first step in starting your own firm is to understand why you are leaving. Write it down. As you formulate the beginning of your new firm, learn from your experience and be thoughtful about what your new firm and new life will look like.

When I work with a lawyer or several lawyers who want to start their own firm, my first question is always: “Why do you want to leave your current firm?” if their answer is only compensation, I do my best to dig deeper and try to find the real reason. If after much probing, I find that compensation is the only reason, I typically discourage the lawyer from starting their own firm. The reason: money can never be the main motivator for starting one’s own firm. There must be a passion and a drive. Only those values will sustain long term satisfaction in one’s choice to start the venture.

Next time:

The essential components to starting your own firm and moving your practice.